BALRAM MANMANI v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2005-LL-0831-6]

Citation 2005-LL-0831-6
Appellant Name BALRAM MANMANI
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 31/08/2005
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags prejudicial to the interests of revenue • opportunity of being heard • revisionary jurisdiction • reasonable opportunity • change of opinion • show-cause notice • fresh assessment • share of profit • special bench • demand draft • family trust • savings bank • donee
Bot Summary: 263 of the Act reads as under: The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The phrase prejudicial to the interests of revenue has to be read in conjunction with an erroneous order passed by the AO. As has been held in various cases reported in Rampyari Devi Saraogi vs. CIT 67 ITR 84, Smt. Tara Devi Aggarwal vs. CIT 1973 CTR 107: 88 ITR 323 and Malabar Industrial Co. Ltd. vs. CIT 159 CTR 1: 243 ITR 83, every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of revenue. The order should be erroneous; and by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. We accordingly cancel the orders of the CIT under s. 263 and restore the orders of the AO. Similar view was taken by the Pune Bench of the Tribunal in the case of Fatehchand Rajmal Jain vs. IAC 57 TTJ 341: 60 ITD 47. CIT 1975 CTR 61: 99 ITR 375, has held as under: As regards the CIT s order under s. 263, a reading of the order showed that it was more on the line of approach of appellate authority which was not its role as held by the Madras High Court in the case of Venkatakrishna Rice Co. vs. CIT 62 CTR 152: 163 ITR 129. As the details have been furnished by the assessee before the AO and the assessment order has been passed by the AO after taking into account the submissions as well as evidences, it cannot be said that the assessment order has been passed in a casual manner. As the facts in the case of the assessee are similar, keeping in view our order in the case of Shri Balram Manmani, we hold that the order passed by the learned CIT was illegal and the same is quashed.


Both appeals have been directed by different assessees against separate orders of learned CIT under s. 263 of Act dt. 24th March, 2005 pertaining to asst. yr. 2001-02. For sake of convenience, we will first take up appeal in case of Shri Balram Manmani. In grounds of appeal, assessee has challenged assumption of jurisdiction under s. 263 of Act as well as direction of learned CIT to make assessment afresh after conducting further enquiries. Briefly, facts of case are that assessee derives share of profit from M/s Balram Wood Products, firm engaged in manufacture and sale of Katha. original assessment under s. 143(3) of Act was completed on 29th Sept., 2003. Subsequently, learned CIT examined assessment records and noted that assessee s accounts have been credited by sum of Rs. 20.39 lakhs by way of gift received from one Shri Vraj Lal G. Pau residing in London through his minor son Master Kamesh Manmani. Indian address of donor was in Chennai. learned CIT observed that while accepting gift as genuine, AO has not made any worthwhile enquiries. He, therefore, felt that assessment order passed by AO was erroneous insofar as prejudicial to interests of Revenue. He, therefore, issued show-cause notice to assessee on 7th March, 2005 as to why assessment order passed by AO may not be enhanced, modified or cancelled and AO be directed to pass fresh assessment order. assessee, vide his reply dt. 14th March, 2005 stated that during assessment proceedings, AO had asked assessee to file various evidences in support of genuineness of gift. In order to prove genuineness of gift, assessee had furnished following documents before AO: (1) Confirmation from donor confirming gift to assessee s minor son. (2) account number of donor from where gift was given. (3) certificate from Union Bank of India, Madurai Branch, confirming demand draft issued from donor s bank account. (4) copy of assessee s bank account where amount has been credited. (5) Statement showing incomings and outgoings of said bank account. (6) Interest as had been credited by bank in savings bank account of assessee (standing in name of minor son). (7) Gift deed duly executed by donor. (8) Passport of donor in support of contention that donor was foreign national. It was also stated that above documents were filed before AO in response to queries made by him. This fact conclusively goes to prove that AO had duly initiated enquiries and took same to logical conclusion. By placing reliance on various case laws, assessee claimed that gift was genuine and as AO has accepted same after making necessary enquiries, assessment order cannot be said to be erroneous insofar as prejudicial to interests of Revenue. learned CIT considered submissions of assessee. He observed that AO had issued questionnaire on 11th Dec., 2002 in which 12 questions were put to assessee. However, no question was put on assessee about genuineness of gift. He also observed that in case of gift, it was very crucial to examine relationship between donor and donee. This has not been examined. capability of donor to make such huge gift and occasion of gift had also not been examined by AO. He also observed that in instant case, most important aspect was relationship between donor and donee. No worthwhile enquiries have been made by AO in this regard. He, therefore, held order passed by AO to be erroneous insofar as prejudicial to interests of Revenue. He cancelled assessment order passed by AO and directed AO to make fresh assessment after examining genuineness of gift and after providing reasonable opportunity to assessee. order of learned CIT has been reasonable opportunity to assessee. order of learned CIT has been challenged before us. It is argued by learned counsel that in his order under s. 263, learned CIT has observed that in instant case, crucial issue was examining relationship between donor and donee. He stated that relationship between donor and donee was not pre-requisite for valid gift during year under consideration. He stated that Allahabad Bench of Tribunal in case of ITO vs. Matadin Snehlata (HUF) (2003) 81 TTJ (All) 995: (2004) 90 ITD 203 (All), has observed that relationship between donor and donee was irrelevant for validity of gift. Delhi Bench of Tribunal in case of Hari Chand Ghanshyam Dass (ITA No. 4398/Del/1992) has also considered this issue. Vide its order, Tribunal held that it was not necessary that donor and donee should be real relations. There may be relation by behaviour. He argued that for validity of gift, AO has to examine legal effect of transaction. Hon ble Supreme Court in case of CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC), has held that in revenue cases regard must be had to substance of transaction rather than its mere form. He stated that Hon ble Supreme Court in case of Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360:(1980) 125 ITR 713 (SC), has observed that burden was on Revenue to show that money belonged to assessee by bringing proper evidence on record and assessee could not be expected to bring evidence to help Department to discharge burden that lay on it. learned counsel further argued that all documents proving validity of gift were filed before AO. Even learned CIT has not doubted veracity of these evidences. He has not doubted origin of gift and receipt therefrom. He also argued that learned CIT was not justified in observing that AO had not called any information regarding genuineness of gift. He stated that though information about validity of gift was not called for through questionnaire, by order sheet entries assessee was asked to furnish evidences in support of gift and these were submitted. AO was satisfied with documents and accepted gift to be genuine. He stated that looking to above facts, order passed by AO cannot be said to be erroneous and as there was neither any error of law or of fact, such order cannot also be said to be prejudicial to interests of Revenue. He stated that term "erroneous" has been explained by Hon ble Bombay High Court in case of CIT vs. Gabriel India Ltd. (1993) 114 CTR (Bom) 81: (1993) 203 ITR 108 (Bom). He also relied on decision of Hon ble Andhra Pradesh High Court in case of Sirpur Paper Mills Ltd. vs. ITO (1978) 114 ITR 404 (AP) wherein Hon ble High Court has observed as under: "The Department cannot be permitted to begin fresh litigation because views they entertain on facts or new versions which they present as to what should be inference of proper inference either of facts disclosed or weight of circumstances. If this is permitted, litigation would have no end, "except when legal ingenuity is exhausted". To do so is ".... to divide one argument into two and to multiply litigation." Relying on legal position mentioned above as well as factual position, learned counsel argued that order passed by AO was neither erroneous nor prejudicial to interests of revenue. learned CIT has wrongly assumed jurisdiction under s. 263 of Act and same deserves to be cancelled. On other hand, learned Departmental Representative stated that assessee s accounts have been credited by huge sums which was claimed to have been received by way of gift. During assessment proceedings, AO did not enquire genuineness of gift by issue of questionnaire. assessment was made in very casual manner. Relying on various cases, learned Departmental Representative stated that non-application of mind makes t h e assessment order erroneous insofar as prejudicial to interests of Revenue. learned CIT has, therefore, rightly assumed jurisdiction under s. 263 of Act. She, therefore, supported order of learned CIT. We have considered rival submissions. Sec. 263 of Act reads as under: "The CIT may call for and examine record of any proceeding under this Act, and if he considers that any order passed therein by AO is erroneous insofar as it is prejudicial to interests of Revenue, he may, after giving assessee opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as circumstances of case justify, including order enhancing or modifying assessment, or cancelling assessment and directing fresh assessment." From reading of s. 263(1), it is clear that power of suo motu revision can be exercised by CIT only if on examination of any proceedings under IT Act, he considers that any order passed by AO was "erroneous" insofar as it is prejudicial to interests of Revenue. It is not arbitrary or un-chattered power. It can be exercised only on fulfilment of requirements laid down in s. 263(1). consideration of CIT as to whether order is erroneous in so far as it is prejudicial to interests of revenue must be based on materials on record of proceedings called for by him. If there are no materials on record on basis of which it can be said that CIT acting in reasonable manner could have come to such conclusion, very initiation of proceedings by him, will be illegal and without jurisdiction. This opinion was expressed by Hon ble Bombay High Court in case of Gabriel India Ltd. (supra). expression "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black s Law Dictionary, 6th Edn., p. 542. According to definition, "erroneous" means "involving error; deviating from law". "Erroneous assessment" refers to assessment that deviates from law and is, therefore, invalid, and is defect that is jurisdictional in its nature. Similarly, "erroneous judgment" means one rendered according to course and practice of Court but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. From aforesaid definitions, it is clear that order cannot be termed as "erroneous" unless it is not in accordance with law. If AO acting in accordance with law, makes certain assessment, same cannot be branded as erroneous by CIT simply because, according to him, order should have been written more elaborately. Hon ble Bombay High Court in case of Gabriel India Ltd. (supra) has held that s. 263 does not visualize case of substitution of judgment of CIT for that of AO, who passed order, unless decision is held to be erroneous. words "prejudicial to interests of Revenue" have not been defined, but they must mean that orders of assessment challenged are such as are not in accordance with law, in consequence whereof lawful revenue due to State has not been realized or cannot be realized. Our views find support from decisions in Addl. CIT vs. Mukur Corpn. (1978) 111 ITR 312 (Guj), Gabriel India Ltd. s case (supra) and CIT vs. Smt. Minalben S. Parikh (1995) 127 CTR (Guj) 333: (1995) 215 ITR 81 (Guj). phrase "prejudicial to interests of revenue" has to be read in conjunction with erroneous order passed by AO. As has been held in various cases reported in Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC), Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107: (1973) 88 ITR 323 (SC) and Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC), every loss of revenue as consequence of order of AO, cannot be treated as prejudicial to interests of revenue. For example, when AO adopted one of courses permissible in law and it has resulted in loss of revenue; or where two views are possible and AO has taken one view with which CIT does not agree, it cannot be treated as erroneous order prejudicial to interests of Revenue, unless view taken by AO is unsustainable in law. Bombay High Court in case of Gabriel India Ltd. (supra) had explained scope of provisions of s. 263 of Act. Hon ble Bombay High Court has observed as under: "Two circumstances must exist to enable CIT to exercise power of revision under this sub-section, viz. (i) order should be erroneous; and (ii) by virtue of order being erroneous prejudice must have been caused to interests of Revenue. order cannot be termed as erroneous unless it is not in accordance with law. If ITO acting in accordance with law makes certain assessment, same cannot be branded as erroneous by CIT simply because, according to him, order should have been written more elaborately. This section does not visualize case of substitution of judgment of CIT for that of ITO, who passed order, unless decision is held to be erroneous. Cases may be visualized where ITO while making assessment examines accounts, makes enquiries, applies his mind to facts and circumstances of case and determines income either by accepting accounts or by making some estimates himself. CIT, on perusal of records, may be of opinion that estimate made by Officer concerned was on lower side and left to CIT he would have estimated income at higher figure than one determined by ITO. That would not vest CIT with power to re-examine accounts and determine income himself at higher figure". Hon ble MP High Court in case of CIT vs. Ratlam Coal Ash Co. (1987) 65 CTR (MP) 305: (1988) 171 ITR 141 (MP), also considered this issue. Hon ble Court held that as order was passed by AO after making inquiries, assumption of jurisdiction under s. 263 was not justified. Special Bench of Tribunal in case of Babu Lal Grandson Family Trust vs. ITO (1989) 31 ITD 52 (Del) (SB), also considered this issue. While allowing appeal of assessee, Tribunal held as under: "Many of points raised by learned CIT in his impugned order are such which really suggest that learned CIT was looking for lot of enquiry or information on points which were not necessary in case of present nature like nature of accounts maintained by trust. Neither papers on record nor any other material which was before ITO or CIT suggested such course of enquiry nor arouse any suspicion. May be that ITO should have written more detailed order but for want of it, it would not become erroneous or prejudicial to interests of Revenue. CIT was not justified in initiating action on basis of mere guess work, possibilities or suspicion under s. 263." Bombay Bench of Tribunal in case of Patel Cotton Co. Ltd. vs. Asstt. CIT (1998) 64 ITD 273 (Bom), also considered scope of provisions of s. 263 of Act. Hon ble Bench observed as under: "Admittedly, when there are two views possible in case then mere fact that AO has taken one view would not render his order as erroneous though it may be prejudicial to interests of Revenue. For exercising powers under s. 263, two conditions must be satisfied. Firstly, order sought to be revised must be erroneous and secondly, by reason of said order there must b e prejudice caused to Revenue. In this case, it may be noted that prejudice is caused to Revenue by adopting view favourable to assessee, yet, order cannot be said to be erroneous as possible view in accordance with decisions of Tribunal (supra) was adopted by AO. Considering facts and circumstances of this case, we are of view of that action of CIT under s. 263 was not warranted as view taken by AO cannot be said to be erroneous in view of decisions of Tribunal quoted elsewhere in this order. We accordingly cancel orders of CIT under s. 263 and restore orders of AO". Similar view was taken by Pune Bench of Tribunal in case of Fatehchand Rajmal Jain vs. IAC (1997) 57 TTJ (Pune) 341: (1997) 60 ITD 47 (Pune). Delhi Bench of Tribunal in case of Super Cassettes Ind. (P) Ltd. vs. CIT (1992) 41 ITD 530 (Del), after considering decision of Hon ble High Court in case of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61: (1975) 99 ITR 375 (Del), has held as under: "As regards CIT s order under s. 263, reading of order showed that it was more on line of approach of appellate authority which was not its role as held by Madras High Court in case of Venkatakrishna Rice Co. vs. CIT (1987) 62 CTR (Mad) 152: (1987) 163 ITR 129 (Mad). It was evident that he was of different opinion from that of his subordinate officer and since he had only proposed to take different view from one taken by AO and s. 263 not being intended for change of opinion, action of CIT was set aside". Keeping in view above legal position, we have examined facts of case before us. Admittedly, during course of assessment proceedings, AO had asked assessee to furnish information in respect of gift received by assessee. assessee had also furnished requisite informations. As details have been furnished by assessee before AO and assessment order has been passed by AO after taking into account submissions as well as evidences, it cannot be said that assessment order has been passed in casual manner. While accepting gift to be genuine, AO has applied his mind and therefore, it cannot be said to be case of non-application of mind. No material whatsoever has been brought on record by learned CIT which go to show that there was any discrepancy or falsity in evidences furnished by assessee. There is force in contention put forth by learned counsel that order has been held to be erroneous in this respect merely on guess work and in expectation of finding out some discrepancy. revisionary jurisdiction as has been conferred on learned CIT under s. 263 cannot be exercised on basis of such possibility or guess work. As AO has examined documents filed before him and has come to definite conclusion, learned CIT could not have thrust his own finding in this respect, even if such opinion, if implemented, can fetch some more revenue. Unless and until some specific error of law is pointed out, as has not been done here, learned CIT s order under s. 263, will have to be held to be based on extraneous material/consideration. Considering facts as whole, we hold that order passed by AO w s neither erroneous nor prejudicial to interests of Revenue and, therefore, assumption of jurisdiction under s. 263 of Act by learned CIT is illegal. We, therefore, quash order under s. 263 passed by learned CIT. In result, appeal directed by assessee is allowed. Now, we will take up appeal in case of Shri Hari Kishan Manmani. In this case also, when return of income was filed by assessee, AO noted that assessee s accounts have been credited by huge sum. He asked assessee to explain nature of credit. It was explained by assessee that credit entries represented gift from same donor, who has given gift in case of Shri Balram Manmani. During assessment proceedings, assessee was asked to file evidences in support of genuineness of gift. Various evidences as in ease of Shri Balram Manmani were filed before AO. AO accepted gift as genuine and passed order under s. 143(3) of Act on 29th Sept., 2003. Subsequently, learned CIT examined assessment records and felt that as AO has not examined genuineness of gift in proper perspective, order passed by AO appears to be erroneous in so far as prejudicial to interests of revenue. He, therefore, issued show cause notice to assessee as to why assessment may not be enhanced, modified, set aside and cancelled for making fresh assessment. assessee made detailed submissions. However, learned CIT held that by not making any enquiry into relationship between donor and donee and genuineness of transactions of gift and capability of donor for which case was selected under scrutiny, AO has apparently ignored interests of revenue, thus, making his order in respect of this issue prejudicial to interests of revenue. He, therefore, cancelled assessment made by AO under s. 143(3) of Act and directed AO to make fresh assessment after conducting enquiries and after giving assessee reasonable opportunity of being heard. We have considered rival submissions. facts of case are similar to that of Shri Balram Manmani. In that case we have held order passed by learned CIT under s. 263 to be illegal. As facts in case of assessee are similar, keeping in view our order in case of Shri Balram Manmani, we hold that order passed by learned CIT was illegal and same is quashed. In result, appeal tiled by assessee is allowed. *** BALRAM MANMANI v. ASSISTANT COMMISSIONER OF INCOME TAX
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